SIDC Module 12 Equity financing, dividend policy and valuation question: share's value today

SIDC Module 12Equity financing, dividend policy and valuation

A company will pay RM0.50 next year and RM0.60 the year after; from then on dividends grow at 5% a year. The required return is 12%. What is the share's value today?

A RM8.10
B RM9.00
C RM9.02
D RM10.10

Show the answer and explanation

Answer: A. RM8.10

Value at the end of year 2: P2 = D3 ÷ (r − g) = (0.60 × 1.05) ÷ 0.07 = RM9.00. Today: 0.50 ÷ 1.12 + (0.60 + 9.00) ÷ 1.12² = 0.446 + 7.653 = RM8.10. RM9.00 is P2, not discounted to today. RM9.02 discounts the year-2 dividend and P2 by one year only. RM10.10 adds the dividends and P2 without discounting any of them. Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Section 6 Topics 10-12 (Equity Financing, Dividend Policy, Valuation); A. Damodaran, Investment Valuation (as at October 2026).

Common mistake

Forgetting to discount the terminal value back to today.

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Original study material mapped to the public SIDC Module 12 syllabus. Unofficial, not endorsed by SIDC or the SC. Verify figures and rules against current guidance before relying on them.